Item 2. Management’s discussion and analysis of financial condition and results of operations

Results of operations

Sales to customers

Analysis of consolidated sales

For the fiscal nine months of 2024, worldwide sales were $66.3 billion, a total increase of 4.0%, including an operational (which excludes translational currency) increase of 5.6% as compared to 2023 fiscal nine months sales of $63.8 billion. Currency fluctuations had a negative impact of 1.6% for the fiscal nine months of 2024. In the fiscal nine months of 2024, acquisitions and divestitures had net positive impact of 0.3% on the worldwide operational sales growth. In the fiscal nine months of 2024, the impact of the Covid-19 Vaccine sales decline on the worldwide operational sales was a negative 1.5%.

Sales by U.S. companies were $37.1 billion in the fiscal nine months of 2024, which represented an increase of 7.7% as compared to the prior year. In the fiscal nine months of 2024, acquisitions and divestitures had net positive impact of 0.4% on the U.S. operational sales growth. Sales by international companies were $29.2 billion, a decrease of 0.4%, including an operational increase of 3.1%, offset by a negative currency impact of 3.5% as compared to the fiscal nine months sales of 2023. In the fiscal nine months of 2024, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 0.1%. In the fiscal nine months of 2024, the impact of the Covid-19 Vaccine sales decline on the international operational sales was a negative 3.2%.

In the fiscal nine months of 2024, sales by companies in Europe experienced a decline of 1.0%, which included an operational decline of 0.7% and a negative currency impact of 0.3%. In the fiscal nine months of 2024, the impact of the Covid-19 Vaccine sales decline on the European region operational sales was a negative 6.0%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 5.8%, which included an operational increase of 21.4%, and a negative currency impact of 15.6%. Sales by companies in the Asia-Pacific, Africa region experienced a decline of 1.6%, including an operational increase of 2.8% offset by a negative currency impact of 4.4%.

Fiscal nine months 2024 sales by geographic region (in billions)

Fiscal nine months 2024 sales by segment (in billions)

Note: values may have been rounded

42

For the fiscal third quarter of 2024, worldwide sales were $22.5 billion, a total increase of 5.2%, which included operational growth of 6.3% and a negative currency impact of 1.1% as compared to 2023 fiscal third quarter sales of $21.4 billion. In the fiscal third quarter of 2024, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 0.9%. In the fiscal third quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the worldwide operational sales was a negative 0.2%.

Sales by U.S. companies were $12.9 billion in the fiscal third quarter of 2024, which represented an increase of 7.6% as compared to the prior year. In the fiscal third quarter of 2024, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 1.1%. Sales by international companies were $9.6 billion, a total increase of 2.2%, which included operational growth of 4.6% and a negative currency impact of 2.4%. In the fiscal third quarter of 2024, the net impact of acquisitions and divestitures on international operational sales growth was a positive 0.6%. In the fiscal third quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the international operational sales was a negative 0.5%.

In the fiscal third quarter of 2024, sales by companies in Europe achieved growth of 4.0%, which included a operational growth of 3.0% and a positive currency impact of 1.0%. In the fiscal third quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the European region operational sales was a negative 0.8%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 0.3%, including operational growth of 20.3% and a negative currency impact of 20.0%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 0.5%, which included operational growth of 1.5% partially offset by a negative currency impact of 1.0%.

Q3 2024 Sales by Geographic Region (in billions)

Q3 2024 Sales by Segment (in billions)

Note: values may have been rounded

Form 10-Q			43

Analysis of sales by business segments

Innovative Medicine

Innovative Medicine segment sales in the fiscal nine months of 2024 were $42.6 billion, an increase of 3.9% as compared to the same period a year ago, with an operational increase of 5.5% and a negative currency impact of 1.6%. In the fiscal nine months of 2024, the impact of the Covid-19 Vaccine sales decline on the Innovative Medicine segment operational sales was a negative 2.4%. U.S. Innovative Medicine sales increased 8.2% as compared to the same period a year ago. International Innovative Medicine sales decreased by 1.7%, including operational growth of 2.1% offset by a negative currency impact of 3.8%. In the fiscal nine months of 2024, the impact of the Covid-19 Vaccine sales decline on the international Innovative Medicine segment operational sales was a negative 5.3%. In the fiscal nine months of 2024, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a negative 0.1%.

Major Innovative Medicine therapeutic area sales — Fiscal Nine Months Ended

(Dollars in Millions)			September 29, 2024						October 1, 2023						Total Change			Operations Change			Currency Change
Immunology			$13,590						$13,457						1.0		%	2.6		%	(1.6)		%
REMICADE			1,246						1,410						(11.6)			(10.3)			(1.3)
SIMPONI/ SIMPONI ARIA			1,607						1,695						(5.2)			(0.7)			(4.5)
STELARA			8,012						8,105						(1.2)			0.0			(1.2)
TREMFYA			2,721						2,237						21.6			23.3			(1.7)
Other Immunology			3						9						(66.8)			(66.8)			—
Infectious Diseases			2,622						3,566						(26.5)			(26.1)			(0.4)
COVID-19 VACCINE			198						1,073						(81.6)			(81.6)			0.0
EDURANT/rilpivirine			950						843						12.7			12.6			0.1
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			1,305						1,415						(7.8)			(7.2)			(0.6)
Other Infectious Diseases			169						235						(28.0)			(25.1)			(2.9)
Neuroscience			5,340						5,339						0.0			1.8			(1.8)
CONCERTA/methylphenidate			482						603						(20.0)			(17.0)			(3.0)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			3,159						3,104						1.8			2.7			(0.9)
SPRAVATO			780						483						61.5			61.8			(0.3)
Other Neuroscience			920						1,149						(19.9)			(15.8)			(4.1)
Oncology			15,284						13,043						17.2			19.3			(2.1)
CARVYKTI			629						341						84.3			84.2			0.1
DARZALEX			8,586						7,194						19.3			21.8			(2.5)
ERLEADA			2,215						1,740						27.3			29.0			(1.7)
IMBRUVICA			2,307						2,476						(6.8)			(5.2)			(1.6)
TECVAYLI			403						269						49.6			50.0			(0.4)
ZYTIGA/ abiraterone acetate			496						686						(27.8)			(23.7)			(4.1)
Other Oncology			649						336						93.4			95.1			(1.7)
Pulmonary Hypertension			3,190						2,798						14.0			16.1			(2.1)
OPSUMIT			1,639						1,437						14.1			15.4			(1.3)
UPTRAVI			1,352						1,163						16.3			17.5			(1.2)
Other Pulmonary Hypertension			199						199						0.3			11.9			(11.6)
Cardiovascular / Metabolism / Other			2,605						2,834						(8.1)			(7.7)			(0.4)
XARELTO			1,697						1,840						(7.8)			(7.8)			—
Other			908						994						(8.7)			(7.7)			(1.0)
Total Innovative Medicine Sales			$42,632						$41,037						3.9		%	5.5		%	(1.6)		%

44

Innovative Medicine segment sales in the fiscal third quarter of 2024 were $14.6 billion, an increase of 4.9% as compared to the same period a year ago, including an operational increase of 6.3% and a negative currency impact of 1.4%. In the fiscal third quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the Innovative Medicine segment operational sales was a negative 0.3%. U.S. Innovative Medicine sales increased 7.5% as compared to the same period a year ago. International Innovative Medicine sales increased by 1.2%, including an operational increase of 4.4% partially offset by a negative currency impact of 3.2%. In the fiscal third quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the international Innovative Medicine operational sales was a negative 0.8%. In the fiscal third quarter of 2024, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a negative 0.1%.

Major Innovative Medicine therapeutic area sales — Fiscal Third Quarter Ended

(Dollars in Millions)			September 29, 2024						October 1, 2023						Total Change			Operations Change			Currency Change
Immunology			$4,621						$4,849						(4.7		%)	(3.3		%)	(1.4)		%
REMICADE			419						461						(9.1)			(7.7)			(1.4)
SIMPONI/ SIMPONI ARIA			516						629						(18.0)			(13.6)			(4.4)
STELARA			2,676						2,864						(6.6)			(5.7)			(0.9)
TREMFYA			1,007						891						13.0			14.3			(1.3)
Other Immunology			1						2						(45.6)			(45.6)			—
Infectious Diseases			836						859						(2.7)			(2.4)			(0.3)
COVID-19 VACCINE			1						41						(97.7)			(98.9)			1.2
EDURANT/rilpivirine			330						297						11.5			10.6			0.9
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			449						447						0.6			1.5			(0.9)
Other Infectious Diseases			55						74						(25.4)			(22.9)			(2.5)
Neuroscience			1,755						1,742						0.8			1.7			(0.9)
CONCERTA/ methylphenidate			142						189						(24.8)			(22.5)			(2.3)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			1,049						1,029						1.9			2.4			(0.5)
SPRAVATO			284						183						54.9			55.3			(0.4)
Other Neuroscience			281						340						(17.4)			(15.7)			(1.7)
Oncology			5,380						4,533						18.7			20.5			(1.8)
CARVYKTI			286						152						87.7			87.6			0.1
DARZALEX			3,016						2,499						20.7			22.9			(2.2)
ERLEADA			790						631						25.4			26.3			(0.9)
IMBRUVICA			753						808						(6.8)			(5.5)			(1.3)
TECVAYLI			135						112						20.6			21.4			(0.8)
ZYTIGA/ abiraterone acetate			150						214						(30.0)			(27.5)			(2.5)
Other Oncology			250						117						*			*			*
Pulmonary Hypertension			1,102						954						15.6			17.0			(1.4)
OPSUMIT			571						490						16.8			17.4			(0.6)
UPTRAVI			458						402						14.2			15.2			(1.0)
Other Pulmonary Hypertension			72						63						15.0			25.9			(10.9)
Cardiovascular / Metabolism / Other			884						957						(7.6)			(7.2)			(0.4)
XARELTO			592						625						(5.2)			(5.2)			—
Other			292						332						(12.0)			(10.9)			(1.1)
Total Innovative Medicine Sales			$14,580						$13,893						4.9		%	6.3		%	(1.4)		%

*percentage greater than 100% or not meaningful

Form 10-Q			45

Immunology products experienced operational decline of 3.3% as compared to the same period a year ago. The growth of TREMFYA (guselkumab) was due to market growth and share gains partially offset by unfavorable patient mix. The growth was offset by declines of STELARA (ustekinumab) sales driven by net unfavorable patient mix and share loss primarily due to European biosimilar entrants partially offset by market growth, SIMPONI/SIMPONI ARIA sales due to return of rights by Merck, Sharp & Dohme in the fiscal fourth quarter of 2024, and lower sales of REMICADE (infliximab) due to biosimilar competition.

Sales of STELARA in the United States were approximately $7.0 billion in fiscal 2023. Third parties have filed abbreviated Biologics License Applications with the FDA seeking approval to market biosimilar versions of STELARA. The Company has settled certain litigation under the Biosimilar Price Competition and Innovation Act of 2009. As a result of these settlements and other agreements with separate third parties, the Company does not anticipate the launch of a biosimilar version of STELARA until January 1, 2025 in the United States. In July 2024, a biosimilar version of STELARA launched in certain European markets for certain indications.

Biosimilar versions of REMICADE have been introduced in the United States and certain markets outside the United States and additional competitors continue to enter the market. Continued infliximab biosimilar competition will result in a further reduction in sales of REMICADE.

Infectious disease products experienced an operational decline of 2.4% as compared to the same period a year ago primarily driven by a decline in COVID-19 vaccine revenue. The Company does not anticipate any COVID-19 vaccine revenue in the remainder of fiscal 2024.

Neuroscience products achieved operational sales growth of 1.7% as compared to the same period a year ago. The growth of SPRAVATO (esketamine) was driven by the ongoing launch and increased physician and patient demand. Growth was partially offset by declines in Other Neuroscience.

Oncology products achieved operational sales growth of 20.5% as compared to the same period a year ago. Strong sales of DARZALEX (daratumumab) were driven by continued share gains in all regions and market growth. Growth of ERLEADA (apalutamide) was due to continued share gains and inventory dynamics. Increased sales of CARVYKTI (ciltacabtagene autoleucel) were driven by continued share gains, capacity expansion and manufacturing efficiencies. Additionally, sales from the ongoing launch of TECVAYLI (teclistamab-cqyv) and the launch of TALVEY (talquetamab-tgvs) and RYBREVANT (amivantamab) in Other Oncology contributed to the growth. Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) declines due to competitive pressures.

Pulmonary Hypertension achieved operational sales growth of 17.0% as compared to the same period a year ago. Sales growth of OPSUMIT (macitentan) was driven by favorable patient mix, market growth and share gains. Sales growth of UPTRAVI (selexipag) was driven by market growth, favorable patient mix and share gains partially offset by inventory dynamics in the U.S.

Cardiovascular / Metabolism / Other products experienced an operational decline of 7.2% as compared to the same period a year ago. The decline of XARELTO (rivaroxaban) sales was primarily driven by unfavorable patient mix and share loss.

The Company maintains a policy that no end customer will be permitted direct delivery of product to a location other than the billing location. This policy impacts contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company’s drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain certain contract pharmacy arrangements under policy exceptions. The Company has been and will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is a U.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities.

46

MedTech

The MedTech segment sales in the fiscal nine months of 2024 were $23.7 billion, an increase of 4.1% as compared to the same period a year ago, with an operational increase of 5.7% and a negative currency impact of 1.6%. U.S. MedTech sales increased 6.7%. International MedTech sales increased by 1.6%, including an operational increase of 4.7% and a negative currency impact of 3.1%. In the fiscal nine months of 2024, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 1.0%, primarily Shockwave.

Major MedTech franchise sales — Fiscal Nine Months Ended

(Dollars in Millions)			September 29, 2024						October 1, 2023						Total Change			Operations Change			Currency Change
Surgery			$7,338						$7,507						(2.2		%)	0.0		%	(2.2)		%
Advanced			3,337						3,504						(4.8)			(2.7)			(2.1)
General			4,001						4,002						0.0			2.3			(2.3)
Orthopaedics			6,843						6,674						2.5			3.2			(0.7)
Hips			1,220						1,162						5.0			5.6			(0.6)
Knees			1,147						1,069						7.2			7.7			(0.5)
Trauma			2,285						2,238						2.1			2.7			(0.6)
Spine, Sports & Other			2,191						2,205						(0.6)			0.1			(0.7)
Cardiovascular**(1)**			5,645						4,681						20.6			22.3			(1.7)
Electrophysiology			3,946						3,449						14.4			16.5			(2.1)
Abiomed			1,112						966						15.1			15.5			(0.4)
Shockwave (2)			306						—						*			*			—
Other Cardiovascular(1)			281						267						5.3			7.2			(1.9)
Vision			3,843						3,864						(0.5)			1.1			(1.6)
Contact Lenses/Other			2,796						2,820						(0.9)			1.0			(1.9)
Surgical			1,048						1,044						0.3			1.4			(1.1)
Total MedTech Sales			$23,669						$22,727						4.1		%	5.7		%	(1.6)		%

(1) Previously referred to as Interventional Solutions

(2) Acquired on May 31, 2024

*Percentage greater than 100% or not meaningful

Form 10-Q			47

The MedTech segment sales in the fiscal third quarter of 2024 were $7.9 billion, an increase of 5.8% as compared to the same period a year ago, which included operational growth of 6.4% and a negative currency impact of 0.6%. U.S. MedTech sales increased 7.8%. International MedTech sales increased by 3.9%, including operational growth of 5.0% and a negative currency impact of 1.1%. In the fiscal third quarter of 2024, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 2.7%, primarily Shockwave.

Major MedTech franchise sales — Fiscal Third Quarter Ended

(Dollars in Millions)			September 29, 2024						October 1, 2023						Total Change			Operations Change			Currency Change
Surgery			$2,434						$2,479						(1.8)		%	(0.7		%)	(1.1)		%
Advanced			1,109						1,164						(4.7)			(3.6)			(1.1)
General			1,325						1,314						0.8			2.0			(1.2)
Orthopaedics			2,191						2,164						1.2			1.3			(0.1)
Hips			381						375						1.7			1.9			(0.2)
Knees			352						338						4.0			4.1			(0.1)
Trauma			761						742						2.6			2.8			(0.2)
Spine, Sports & Other			696						710						(1.9)			(2.0)			0.1
Cardiovascular**(1)**			1,966						1,558						26.2			26.5			(0.3)
Electrophysiology			1,279						1,161						10.2			10.7			(0.5)
Abiomed			362						311						16.3			16.3			0.0
Shockwave(2)			229						—						*			*			—
Other Cardiovascular(1)			96						87						10.4			10.2			0.2
Vision			1,300						1,256						3.5			4.0			(0.5)
Contact Lenses/Other			968						928						4.2			4.7			(0.5)
Surgical			333						328						1.3			1.9			(0.6)
Total MedTech Sales			$7,891						$7,458						5.8		%	6.4		%	(0.6)		%

(1) Previously referred to as Interventional Solutions

(2) Acquired on May 31, 2024

*Percentage greater than 100% or not meaningful

The Surgery franchise experienced an operational sales decline of 0.7% as compared to the prior year fiscal third quarter. The Surgery franchise results were positively impacted by price increases associated with Argentina hyperflation. The operational decline in Advanced Surgery was primarily due to China Volume-Based Procurement across all platforms, competitive pressures in Energy and Endocutters, go to market changes in EMEA and harmonic market decline in the U.S. in Energy, and tender timing outside the U.S. in Biosurgery. This was partially offset by the strength of the portfolio and commercial execution in Biosurgery as well as the strength of new products in Endocutters and lapping of prior year supply challenges outside the U.S. in Energy. The operational growth in General Surgery was primarily driven by technology penetration and upgrades within the differentiated Wound Closure portfolio and lapping of prior year impacts from Russia sanctions. The growth was partially offset by the impact of the Acclarent divestiture.

The Orthopaedics franchise achieved operational sales growth of 1.3% as compared to the prior year fiscal third quarter. The operational growth in Hips reflects the continued strength of the portfolio partially offset by China volume-based procurement impacts. The operational growth in Knees was primarily driven by procedures, continued strength of the ATTUNE portfolio, pull through related to the VELYS Robotic assisted solution partially offset by tender timing outside the U.S. The operational growth in Trauma was driven by the continued adoption of recently launched products, procedure growth and commercial execution partially offset by China volume-based procurement impacts. The operational sales decline in Spine, Sports & Other was primarily driven by competitive pressures and China volume-based procurement impacts partially offset by growth in Craniomaxillofacial and Shoulders and outside the U.S. market growth.

The Cardiovascular franchise, which includes sales from Shockwave Medical (Shockwave) acquired on May 31, 2024, achieved operational sales growth of 26.5% as compared to the prior year fiscal third quarter. Electrophysiology grew by double digits due to global procedure growth, new products and commercial execution. The growth was partially offset by competitive PFA pressures in

48

ablation catheters in the U.S. and prior year trade inventory dynamics and volume-based procurement in China. Abiomed sales reflect the strength of all major commercialized regions driven by continued strong adoption of Impella 5.5 and Impella RP.

The Vision franchise achieved operational sales growth of 4.0% as compared to the prior year fiscal third quarter. The Contact Lenses/Other operational growth was driven by price actions, continued strong performance in the ACUVUE OASYS 1-Day family of products (including recent launches), impacts from a one-time change in contract shipping terms in the U.S. and lapping of prior year impacts of Russian sanctions. The Surgical operational growth was primarily driven by the continued strength of recent innovations and commercial execution partially offset by China volume-based procurement and competitive pressures in the U.S.

Analysis of consolidated earnings before provision for taxes on income

Consolidated earnings before provision for taxes on income for the fiscal third quarter of 2024 was $3.3 billion representing 14.9% of sales as compared to $5.2 billion in the fiscal third quarter of 2023, representing 24.4% of sales.

Consolidated earnings before provision for taxes on income for the fiscal nine months of 2024 was $12.8 billion representing 19.3% of sales as compared to $10.2 billion in the fiscal nine months of 2023, representing 16.1% of sales.

Cost of products sold

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal nine months Q3 2024 versus Fiscal nine months Q3 2023

Cost of products sold decreased as a percent to sales driven by:

• Lower one-time COVID-19 vaccine supply network related exit costs in 2024 ($0 in 2024 versus $0.2 billion 2023)

• Favorable patient mix in the Innovative Medicine business

partially offset by

• The fair value Inventory step-up of $0.2 billion related to the business combination accounting associated with Shockwave

The intangible asset amortization expense included in cost of products sold for the fiscal nine months of 2024 and 2023 was $3.4 billion in both periods.

Q3 2024 versus Q3 2023

Cost of products sold increased slightly as a percent to sales primarily driven by:

• The fair value inventory step-up related to the business combination accounting and amortization of $0.3 billion related to Shockwave

• Unfavorable currency in the Innovative Medicine business

partially offset by

• Prior year restructuring related excess inventory costs and current year supply chain efficiencies in the MedTech business

Form 10-Q			49

The intangible asset amortization expense included in cost of products sold for the fiscal third quarters of 2024 and 2023 was $1.2 billion and $1.1 billion in the fiscal third quarter of 2024 and 2023, respectively.

Selling, marketing and administrative expenses

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal nine months Q3 2024 versus Fiscal nine months Q3 2023

Selling, Marketing and Administrative Expenses increased slightly as a percent to sales driven by:

• Timing of brand marketing investment in the Innovative Medicine and MedTech businesses

partially offset by

• Optimization efforts related to the residual costs associated with the Kenvue separation

Q3 2024 versus Q3 2023

Selling, Marketing and Administrative Expenses decreased as a percent to sales primarily driven by:

• Optimization efforts related to the residual costs associated with the Kenvue separation

Research and development expense

Research and development expense by segment of business was as follows:

			Fiscal Third Quarter Ended															Fiscal Nine Months Ended
			2024									2023						2024									2023
(Dollars in Millions)			Amount			% of Sales*						Amount			% of Sales*			Amount			% of Sales*						Amount			% of Sales*
Innovative Medicine			$4,213			28.9		%				$2,778			20.0		%	$9,831			23.1		%				$8,604			21.0		%
MedTech			739			9.4						669			9.0			2,103			8.9						2,001			8.8
Total research and development expense			$4,952			22.0		%				$3,447			16.2		%	$11,934			18.0		%				$10,605			16.6		%
Percent increase/(decrease) over the prior year			43.7		%													12.5		%
*As a percent to segment sales

Fiscal nine months Q3 2024 versus Fiscal nine months Q3 2023

Research and Development increased as a percent to sales driven by:

• Expense of $1.25 billion to secure the global rights to the NM26 bispecific antibody (Yellow Jersey acquisition)

• Phasing of expenses in the MedTech business

50

Q3 2024 versus Q3 2023

Research and Development increased as a percent to sales driven by:

• Expense of $1.25 billion to secure the global rights to the NM26 bispecific antibody (Yellow Jersey acquisition)

• Phasing of expenses in the MedTech business

In-process research and development (IPR&D) impairments

In the fiscal nine months of 2024, the Company recorded a charge of approximately $0.2 billion associated with the M710 (biosimilar) asset acquired as part of the acquisition of Momenta Pharmaceuticals in 2020. There was also a partial impairment of this asset for $0.2 billion in the fiscal third quarter of 2023. This asset is now fully impaired. Additionally, the fiscal nine months of 2023, the Company recorded a charge of approximately $0.1 billion associated with the IPR&D acquired with Pulsar Vascular in 2016.

Interest (income) expense

Interest (income) expense in the fiscal nine months of 2024 was net income of $433 million as compared to $277 million in the fiscal nine months of 2023 primarily due to higher rates of interest earned on cash balances and a lower average rate on the debt partially offset by a higher average debt balance related to funding the Shockwave acquisition. Interest (income) expense in the fiscal third quarter of 2024 was net income of $99 million as compared to $182 million in the fiscal third quarter of 2023 primarily due to a due to a higher average debt balance related to funding the Shockwave acquisition and a lower average cash balance. The balance of cash, cash equivalents and current marketable securities was $20.3 billion at the end of the fiscal third quarter of 2024 as compared to $23.5 billion at the end of the fiscal third quarter of 2023. The Company’s debt position was $35.8 billion as of September 29, 2024, as compared to $29.9 billion the same period a year ago.

Other (income) expense, net*

Fiscal nine months Q3 2024 versus Fiscal nine months Q3 2023

Other (income) expense, net for the fiscal nine months of 2024 reflected less expense of $2.2 billion as compared to the prior year primarily due to the following:

Fiscal Nine Months
(Dollars in Billions)(Income)/Expense						September 29, 2024						October 1, 2023						Change
Litigation related(1)						5.5						6.7						(1.2)
Acquisition, Integration and Divestiture related						0.7						0.1						0.6
Changes in the fair value of securities(2)						0.4						1.1						(0.7)
COVID-19 Vaccine manufacturing related exit costs						0.1						0.4						(0.3)
Employee benefit plan related						(0.7)						(1.1)						0.4
Monetization of royalty rights						(0.3)						0.0						(0.3)
Other						(0.8)						(0.1)						(0.7)
Total Other (Income) Expense, Net						$	4.9					7.1						(2.2)

(1)The fiscal nine months of 2024 and 2023 include charges for talc matters. The fiscal nine months of 2023 includes favorable intellectual property related litigation settlements of approximately $0.3 billion.

(2)The fiscal nine months of 2024 includes the loss on the completion of the debt for equity exchange of the retained stake in Kenvue. The fiscal nine months of 2023 includes $0.6 billion related to the unfavorable change in the fair value of the Kenvue securities and $0.4 billion related to the partial impairment of Idorsia convertible debt and the change in the fair value of the Idorsia equity securities held.

Form 10-Q			51

Q3 2024 versus Q3 2023

Other (income) expense, net for the fiscal third quarter of 2024 reflected an increase in expense of $1.3 billion as compared to income in the prior year primarily due to the following:

Fiscal Third Quarter
(Dollars in Billions)(Income)/Expense						September 29, 2024						October 1, 2023						Change
Litigation related(1)						$	2.4					(0.1)						2.5
Acquisition, Integration and Divestiture related						0.1						0.0						0.1
Changes in the fair value of securities(2)						0.0						1.0						(1.0)
Monetization of royalty rights						(0.3)						0.0						(0.3)
Employee benefit plan related						(0.2)						(0.3)						0.1
Other						(0.2)						(0.1)						(0.1)
Total Other (Income) Expense, Net						$	1.8					0.5						1.3

(1)The fiscal third quarter of 2024 includes charges for talc matters.

(2)The fiscal third quarter of 2023 includes $0.6 billion related to the unfavorable change in the fair value of the Kenvue securities and $0.4 billion related to the partial impairment of Idorsia convertible debt and the change in the fair value of the Idorsia equity securities held.

*Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, gains and losses on divestitures, gains and losses on sale of assets, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income.

Earnings before provision for taxes by segment

Income before tax by segment of business for the fiscal nine months were as follows:

			Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)			September 29, 2024						October 1, 2023						September 29, 2024						October 1, 2023						September 29, 2024						October 1, 2023
Innovative Medicine			$14,910						$14,008						$42,632						$41,037						35.0		%				34.1		%
MedTech			3,668						4,265						23,669						22,727						15.5						18.8
Segment earnings before tax			18,578						18,273						66,301						63,764						28.0						28.7
Less: Expenses not allocated to segments(1)			5,778						8,037
Worldwide income before tax			$12,800						$10,236						$66,301						$63,764						19.3		%				16.1		%

**(1)**Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal nine months of 2024 and 2023 include charges for talc matters of approximately $5.1 billion and $7.0 billion, respectively. The fiscal nine months of 2024 includes a loss of approximately $0.4 billion related to the debt to equity exchange of the Company's remaining shares of Kenvue Common Stock. The fiscal nine months of 2023 includes the unfavorable change in the fair value of the retained stake in Kenvue of approximately $0.6 billion.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal nine months of 2024 was 35.0% versus 34.1% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal nine months of 2024 as compared to the prior year was primarily driven by the following:

• One-time COVID-19 Vaccine related exit costs of $0.1 billion in 2024 versus $0.7 billion in 2023

• Restructuring related charge of $0.1 billion in 2024 versus $0.4 billion in 2023

52

• Unfavorable changes in the fair value of securities of $0.5 billion in 2023

• Favorable patient mix in Cost of products sold

• Monetization of royalty rights of $0.3 billion in 2024

partially offset by

• Expense of $1.25 billion to secure the global rights to the NM26 bispecific antibody

• Litigation expense of $0.4 billion in 2024, primarily related to Risperdal Gynecomastia, versus favorable litigation related items of $0.1 billion in 2023

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal nine months of 2024 was 15.5% versus 18.8% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal nine months of 2024 was primarily driven by the following:

• Acquisition and integration related costs of $0.9 billion in 2024 (primarily related to the Shockwave acquisition) versus $0.1 billion in 2023 related to Abiomed

• Intangible asset amortization of $1.3 billion in 2024 versus $1.1 billion in 2023

• Timing of brand marketing investment

partially offset by

• A gain of $0.2 billion related to the Acclarent divestiture in 2024

• Restructuring related charge of $0.1 billion in 2024 versus $0.2 billion in 2023

• An IPR&D charge in 2023 of approximately $0.1 billion related to the Pulsar Vascular acquisition in the fiscal year 2016

Income (loss) before tax by segment of business for the fiscal third quarters were as follows:

						Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)						September 29, 2024						October 1, 2023						September 29, 2024						October 1, 2023						September 29, 2024						October 1, 2023
Innovative Medicine						$4,482						$4,794						$14,580						$13,893						30.7		%				34.5		%
MedTech						1,059						1,185						7,891						7,458						13.4						15.9
Segment earnings before tax						5,541						5,979						22,471						21,351						24.7						28.0
Less: Expenses not allocated to segments(1)						2,203						762
Worldwide income (loss) before tax						$3,338						$5,217						$22,471						$21,351						14.9		%				24.4		%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal third quarter of 2024 includes charges for talc matters of $2.0 billion. The fiscal third quarter of 2023 includes the unfavorable change in the fair value in the retained stake in Kenvue of approximately $0.6 billion.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal third quarter of 2024 was 30.7% versus 34.5% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal third quarter of 2024 as compared to the prior year was primarily driven by the following:

• Payment of $1.25 billion to secure the global rights to the NM26 bispecific antibody

• Litigation expense of $0.4 billion in 2024 primarily related to Risperdal Gynecomastia

• Unfavorable currency in Cost of products sold

partially offset by

• An In-process research and development impairment of $0.2 billion in 2023 related to the M710 (biosimilar) asset acquired with Momenta in 2020

• Restructuring expense of $0.1 billion in 2023

• Unfavorable changes in the fair value of securities of $0.4 billion in 2023

• Monetization of royalty rights of $0.3 billion in 2024

Form 10-Q			53

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal third quarter of 2024 was 13.4% versus 15.9% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal third quarter of 2024 as compared to the prior year was primarily driven by the following:

• Acquisition and integration related costs of $0.3 billion in 2024 (primarily related to the Shockwave acquisition)

• Intangible asset amortization of $0.5 billion in 2024 versus $0.4 billion in 2023

partially offset by

• Restructuring related charge of $0.2 billion in 2023

Restructuring

In the fiscal year 2023, the Company completed a prioritization of its research and development (R&D) investment within the Innovative Medicine segment to focus on the most promising medicines with the greatest benefit to patients. This resulted in the exit of certain programs within therapeutic areas. The R&D program exits are primarily in infectious diseases and vaccines including the discontinuation of its respiratory syncytial virus (RSV) adult vaccine program, hepatitis and HIV development. Pre-tax Restructuring expense was immaterial in the fiscal third quarter of 2024 and $0.1 billion of expense in the fiscal nine months of 2024, and included the termination of partnered and non-partnered development program costs, asset impairments and asset divestments. The pre-tax restructuring charge of approximately $0.1 billion and $0.4 billion in the fiscal third quarter and fiscal nine months of 2023, respectively, included the termination of partnered and non-partnered program costs and asset impairments. Total project costs of approximately $0.6 billion have been recorded since the restructuring was announced.

In the fiscal year 2023, the Company initiated a restructuring program of its Orthopaedics franchise within its MedTech segment to streamline operations by exiting certain markets, product lines and distribution network arrangements. The pre-tax restructuring expense was immaterial in the fiscal third quarter of 2024 and $0.1 billion in the fiscal nine months of 2024, and primarily included costs related to market and product exits. The pre-tax restructuring expense of $0.2 billion in the fiscal third quarter and fiscal nine months of 2023, of which $9 million was recorded in Restructuring and $226 million was recorded in Cost of products sold on the Consolidated Statement of Earnings. Total project costs of approximately $0.4 billion have been recorded since the restructuring was announced.

Provision for taxes on income

The worldwide effective income tax rate for the fiscal nine months was 16.9% in 2024 and 10.2% in 2023.

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. As of December 31, 2023, several EU and non-EU countries have enacted Pillar Two legislation with an initial effective date of January 1, 2024, with other aspects of the law effective in 2025 or later. The Company is estimating that as a result of this legislation the 2024 effective tax rate will increase by approximately 1.0% to 1.5% compared to fiscal 2023. Further legislation, guidance and regulations that may be issued in the future, as well as other business events, may impact this estimate.

For further details related to the 2024 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

54

Liquidity and capital resources

Acquisitions (net of cash acquired)

Proceeds from the disposal of assets/businesses, net

Dividends to shareholders

Cash flows

Cash and cash equivalents were $20.0 billion at the end of the fiscal third quarter of 2024 as compared with $21.9 billion at the end of fiscal year 2023. The primary sources and uses of cash that contributed to the $1.9 billion decrease were:

(Dollars In Billions)
21.9						Q4 2023 Cash and cash equivalents balance
17.3						net cash generated from operating activities
(17.3)						net cash used by investing activities
(1.8)						net cash used by financing activities
(0.1)						effect of exchange rate changes on cash and cash equivalents
$	20.0					Q3 2024 Cash and cash equivalents

In addition, the Company had $0.3 billion in marketable securities at the end of the fiscal third quarter of 2024 and $1.1 billion at the end of fiscal year 2023.

Cash flow from operations of $17.3 billion was the result of:

(Dollars In Billions)
$	10.6					Net earnings
5.6						non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, charge for in-process research and development assets and asset write-downs partially offset by the net gain on sale of assets/businesses and the deferred tax provision
(2.3)						an increase in accounts receivable and inventories
2.7						an increase in accounts payable and accrued liabilities
0.9						a decrease in other current and non-current assets
(0.3)						a decrease in other current and non-current liabilities
0.1						Other and rounding
$	17.3					Net cash flows from operations

Form 10-Q			55

Cash flow used by investing activities of $17.3 billion was primarily from:

(Dollars In Billions)
$	(2.8)					additions to property, plant and equipment
0.6						proceeds from the disposal of assets/businesses, net
(15.1)						acquisitions, net of cash acquired
(1.3)						purchases of in-process research and development assets
0.7						net sales of investments
0.7						credit support agreements activity, net
(0.1)						Other (primarily capitalized licenses and milestones)
$	(17.3)					Net cash used by investing activities

Cash flow used by financing activities of $1.8 billion was primarily from:

(Dollars In Billions)
$	(8.8)					dividends to shareholders
(2.2)						repurchase of common stock
9.5						net proceeds from short and long term debt
0.7						proceeds from stock options exercised/employee withholding tax on stock awards, net
(1.0)						Settlement of convertible debt acquired from Shockwave
$	(1.8)					Net cash used by financing activities

The Company has access to substantial sources of funds at numerous banks worldwide and has the ability to issue up to $20 billion in Commercial Paper. Furthermore, in June 2024, the Company secured a new 364-day Credit Facility of $10 billion (expiration on June 25, 2025) which may be used for general corporate purposes including to support our commercial paper borrowings. Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material.

As of September 29, 2024, the Company had cash, cash equivalents and marketable securities of approximately $20.3 billion and had approximately $35.8 billion of notes payable and long-term debt for a net debt position of $15.5 billion as compared to the prior year fiscal third quarter net debt position of $6.4 billion. In the fiscal second quarter of 2024, the Company issued senior unsecured notes for a total of $6.7 billion. For additional details on borrowings, see Note 4 to the Consolidated Financial Statements. The net proceeds from this offering were used to fund the Shockwave acquisition which closed on May 31, 2024, and for general corporate purposes. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access to the commercial paper markets will continue to provide sufficient resources to fund operating needs, including the Company’s remaining balance to be paid on the agreement to settle opioid litigation for approximately $1.7 billion and the approximately $12.0 billion ($13.9 billion nominal) reserve remaining for talc matters (See Note 11 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable.

In the fiscal nine months of 2024, the Company paid approximately $3.5 billion to the U.S. Treasury including $2.0 billion related to the current installment due on foreign undistributed earnings as part of the TCJA charge (see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023), $1.3 billion primarily related to the normal estimated payments for the first nine months of fiscal 2024 and $0.2 billion in payments for certain items under examination for the 2017 through 2020 U.S. IRS audit. Additionally, the Company has paid $1.7 billion in income related taxes net of refunds to foreign jurisdictions in the first nine months of fiscal 2024.

Dividends

On July 17, 2024, the Board of Directors declared a regular cash dividend of $1.24 per share, payable on September 10, 2024, to shareholders of record as of August 27, 2024.

On October 15, 2024, the Board of Directors declared a regular cash dividend of $1.24 per share, payable on December 10, 2024, to shareholders of record as of November 26, 2024. The Company expects to continue the practice of paying regular quarterly cash dividends.

56

Other information

New accounting pronouncements

Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.

Economic and market factors

In July 2023, Janssen Pharmaceuticals, Inc. (Janssen) filed litigation against the U.S. Department of Health and Human Services as well as the Centers for Medicare and Medicaid Services challenging the constitutionality of the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program. The litigation requests a declaration that the IRA violates Janssen’s rights under the First Amendment and the Fifth Amendment to the Constitution and therefore that Janssen is not subject to the IRA’s mandatory pricing scheme. In April 2024, Janssen appealed the district court’s denial of its summary judgment motion to the Third Circuit.

Russia-Ukraine war

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal third quarter of 2024, including accounts receivable or inventory reserves, was not material. As of the fiscal nine months ending September 29, 2024, and the fiscal year ending December 31, 2023, the business of the Company’s Russian subsidiaries represented less than 1% of both Company’s consolidated assets and revenues. The Company does not maintain Ukraine subsidiaries subsequent to the Kenvue separation.

In March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. The Company continues to supply products relied upon by patients for healthcare purposes.

Conflict in the Middle East

Although the long-term implications of the conflict in the Middle East are difficult to predict at this time, the financial impact of the conflict in the fiscal third quarter of 2024, including accounts receivable or inventory reserves, was not material. As of the fiscal nine months ending September 29, 2024, and the fiscal year ending December 31, 2023, the business of the Company’s Israel subsidiaries represented approximately 1% of the Company’s consolidated assets and represented less than 1% of revenues.

Other Macroeconomic Considerations

The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela, Argentina and Turkey as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.

The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.

Changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing healthcare insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s businesses.

The Company faces regular intellectual property challenges from third parties, including generic and biosimilar manufacturers, seeking to manufacture and market generic and biosimilar versions of key pharmaceutical products prior to the expiration of the applicable patents. These challengers file Abbreviated New Drug Applications or abbreviated Biologics License Applications with the FDA or otherwise challenged the coverage and/or validity of the Company’s patents. In the event the Company is not

Form 10-Q			57

successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue may be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.